Payday loans can provide fast cash when you’re facing an unexpected financial emergency in Minnesota. But before getting one, it’s important to understand how payday loans work, their costs, benefits, alternatives, and the regulations governing them in Minnesota. This comprehensive guide will equip you with everything you need to make an informed decision.
What Are Payday Loans?
Payday loans are small, short-term loans designed to provide cash until your next paycheck arrives. They go by many names – cash advances, check loans, deferred deposit loans. But they all work similarly.
Here’s how it works:
- You provide a post-dated check or e-payment authorization for the loan amount plus a finance fee. This check or authorization is dated for your next payday – usually two to four weeks later.
- The lender immediately gives you cash or deposits the loan amount into your bank account.
- On your next payday, the lender cashes your check or withdraws the repayment amount from your account.
Payday loans typically range from $100 to $1,000, with an average around $350. The repayment period is usually 14 days or one month, coinciding with your next paycheck.
These loans are designed to help borrowers cover short-term cash shortfalls until they receive their next income. Common uses include:
- Emergency expenses – Car repairs, medical bills, home repairs
- Bills – Utilities, rent, credit cards
- Everyday costs – Gas, groceries, childcare
While convenient, payday loans are expensive, have high interest rates, and should only be used for emergencies.
Payday Loan Requirements in Minnesota
To qualify for a payday loan in Minnesota, you’ll need:
- To be at least 18 years old
- An active checking account
- Proof of income, such as pay stubs
- A valid government-issued ID
- A Social Security Number
- A working phone number and email address
Lenders may also verify your employment and income. There is usually no formal credit check, which makes payday loans accessible to those with poor credit.
You must have sufficient income to repay the loan on your next pay date. Lenders will ensure you earn enough to cover loan payments, fees, and regular living expenses.
Online lenders have similar requirements but will also need your bank account login details to deposit and withdraw funds.
The Benefits of Payday Loans in Minnesota
For those facing an immediate cash crunch, payday loans offer several benefits:
1. Quick Access to Cash
The biggest appeal is how fast you can get cash – often as soon as the same day you apply. The application process is quick and funds are deposited directly into your bank account once approved. This makes payday loans helpful when you need money urgently before payday.
2. Easy Qualification
Payday lenders generally don’t do formal credit checks. As long as you have a steady income and active checking account, you have a good chance of approval despite past credit issues. This allows those with poor credit or no credit access emergency funds.
3. Convenient Locations
Many payday lenders operate retail locations across Minnesota. You can stop into a store, apply, fulfill requirements, and walk out with cash quickly. They have weekend and evening hours unlike banks and credit unions, plus easy online applications.
4. Regulated Industry
Reputable payday lenders operating in Minnesota are licensed and regulated by the state. This helps protect consumers from excessive fees and predatory lending practices through caps on interest and strict rules. Dealing with licensed lenders reduces risk.
The Costs and Fees of Payday Loans
Payday loans provide quick cash convenience, but they come at a high cost relative to the small loan amounts. It’s important to understand the fees before committing:
In Minnesota, finance charges on payday loans are capped at $15.50 per $100 borrowed. For a standard $350 loan, this equates to $54 in finance fees. On a 2-week loan, this leads to an Annual Percentage Rate (APR) of 390%!
This makes the cost of a payday loan extremely high on an annual basis. But since they are designed for short 14-30 day uses, you only pay the charge once when the loan comes due – avoiding ongoing interest.
Still, the charges are considerable for cash-strapped borrowers and add up quickly with rollovers or multiple loans.
Insufficient Funds Fees
If you lack sufficient funds when the lender tries to cash your postdated check or withdraw the repayment amount, you face non-sufficient funds (NSF) charges from both the lender and your bank. These fees can rapidly make a payday loan unaffordable.
Make sure you have enough in your account on the due date to avoid these added costs.
Beyond finance charges, some payday lenders may charge application fees, origination fees, late fees, or returned check fees. Always check the lender’s fee schedule before borrowing. Reputable lenders are upfront about all costs.
While costly, in an absolute emergency, a payday loan fee may be cheaper than alternatives like late bill payments or overdraft fees. But the high APR makes them unsuitable as an ongoing or long-term solution.
Payday Loan Regulations in Minnesota
Minnesota laws regulate payday lending to protect consumers from predatory practices. Some key regulations include:
Loans are capped at $350. This limits borrowers’ exposure to unaffordable debt.
Finance Charge Caps
As mentioned, finance charges are limited to $15.50 per $100 borrowed – capping APR at around 390%.
Payday lenders cannot roll over or refinance the loan when it comes due. You must repay the full balance, preventing a cycle of debt.
Cooling Off Period
After repaying a loan, you must wait 6 days before taking a new loan from the same lender. This prevents lenders from continually issuing new loans.
Database to Prevent Excessive Lending
Lenders must verify applicants have not had more than four outstanding loans in the past year. This database prevents being in debt across multiple lenders.
So in summary, Minnesota laws limit loan sizes, cap fees, ban rollovers, enforce cooling off periods, and prohibit excessive borrowing across lenders. This keeps payday loans manageable for emergency use.
Payday Loan Alternatives in Minnesota
Due to their high costs, payday loans should be a last resort option. Before getting one, Minnesotans should consider these less expensive alternatives:
Ask for an Advance
Ask your employer for a paycheck advance or attend a job where you can cash out wages already earned. Many jobs allow periodic cash-out of accrued wages as an employee benefit.
Borrow from Family or Friends
Asking loved ones for a short-term loan or gift can provide cash access without fees or interest. Draft a repayment plan to keep relationships healthy.
Use Available Credit
Rather than a new payday loan, use available credit on your credit cards, overdraft protection, or home equity line of credit when possible. The fees will likely be less than a payday loan. Pay off ASAP.
Seek Nonprofit Assistance
Nonprofit credit counseling services like LSS Financial Counseling offer free debt and budget help, alongside low-interest loans or grants for critical needs.
Banks, credit unions, and online lenders offer installment loans with longer terms and more affordable payments through direct deposit access. These help avoid a cycle of debt.
Sell Unneeded Items
Tools, electronics, collectibles and clothes can be sold for quick cash through Facebook Marketplace, Craigslist or pawn shops. Downsizing possessions generates funds.
The key is exhausting lower-cost alternatives before considering a new payday loan, which should be a last option for genuine emergencies.
Using Payday Loans Responsibly
If you do take a payday loan, adhere to these tips:
- Borrow only what you can afford to pay with your next check while still covering normal living expenses.
- Verify it is a licensed Minnesota lender charging legal rates and fees.
- Never borrow from one lender to pay another – break the cycle.
- Have a plan to repay in full on time to avoid rollovers and fees.
- Use sparingly for true emergencies, not everyday costs.
- Look for lenders offering extended payment plans if unable to repay immediately.
- Avoid borrowing multiple payday loans from different companies.
- Check the lender’s reputation and reviews before providing bank account access.
Responsible, occasional use can make payday loans workable. But leaning on them regularly or for nonessentials can lead to a downward financial spiral due to the high costs.
Payday Loans in Minnesota: The Key Takeaways
To conclude, here are the key points to remember:
- Payday loans provide fast access to a few hundred dollars for those facing an urgent financial emergency between paychecks.
- They come with very high interest rates, typically around 390% APR, and should only be used as a last resort after exhausting cheaper alternatives.
- Payday loans are regulated in Minnesota with caps on loan amounts, fees, and borrowing frequency to protect consumers.
- To qualify you need steady income, an active checking account, and to be over 18. No extensive credit check is required.
- Shop for a licensed Minnesota payday lender and compare all fees upfront before signing. Avoid shady unlicensed operators.
- Exhaust lower-cost alternatives first before resorting to a payday loan, and have a firm repayment plan.
- Only use payday loans for true emergencies and pay back on time to avoid rollovers, repaying new loans, and getting caught in debt cycles.
- Use payday loans sparingly and responsibly. Don’t make a habit out of them or use them for unnecessary purchases.
- Follow the rules and borrow within your means to have the best chance of using a payday loan successfully as a short-term emergency fix.
So in summary, payday loans can provide fast cash when used carefully as a temporary solution for urgent needs. But proceed with caution due to the high costs.